Bankitalia: falling ECB rates will boost the economy

The path of falling rates taken by the Bce will "in perspective provide a boost" to Italy's weakly growing economy, helping "to reduce in the coming months the financing costs of companies and their insolvency rates" that have been rising for several months. This is stated in the Bank of Italy's financial stability report, according to which 'the macroeconomic framework' of our country 'remains rather fragile'.

The slowdown in inflation and the fall in interest rates will in any case contribute in 2025 to reducing the financial difficulties of Italian households, which, already in 2024, saw their purchasing power increase thanks to price reductions and contractual renewals. According to the report, next year's estimate would see a decrease in the financial vulnerability of households, while the percentage of financially fragile households will remain stable at 1.5 per cent (about one third of which are households that also have consumer loans).

Certificates, derivative and securitised financial instruments that make it possible to invest in any market, but which are 'complex and relatively risky' capable of generating 'high losses', are growing in the portfolios of Italian households. Bankitalia, incidentally, had already reported the phenomenon 'and continues to monitor its evolution'. In June 2024, almost 12 per cent of the debt securities held by households were represented by certificates, amounting to 56 billion euro against 44 billion in 2023, a share second only to government bonds among debt securities. The majority of investors were households 'in good income and financial condition'. For the Bank, 'these are complex instruments that in some cases can be subject to large price fluctuations and therefore expose holders to high losses should an adverse scenario occur'.

Still good profits, albeit down from the highs of 2023 and 2024, for banks in the next two years. As emerges from the Bank of Italy's Financial Stability Report despite the fall in rates already underway, "overall profitability of banks would remain high in the current year, at levels close to those observed in 2023. It would decrease in the following two years, while remaining broadly positive and above the average of the last five years. "Net interest income would increase further this year, slowing only in 2025-26". Certainly, the report admits, 'loan impairments would increase in the next two years, due to the expected rise in the loan deterioration rate, but would still be lower than before the pandemic crisis'.

The list of 'nationally systemically important' banks drawn up by the Bank of Italy for 2025 remains unchanged, but for those that entered last year, Iccrea, Mediobanca, Bper and Bnl, the transitional regime ends and they will see their mandatory capital buffer increase. In particular, stresses Via Nazionale in a note, UniCredit, Intesa Sanpaolo, Banco BPM, Bper Banca, Mediobanca, Iccrea and Banca Nazionale del Lavoro remain Other Systemically Important Institutions (O-SIIs). UniCredit, Intesa Sanpaolo, Banco Bpm, Bper Banca, Mediobanca, Iccrea and Banca Nazionale del Lavoro will be required to maintain a capital buffer (O-SII buffer) of 1.50, 1.25, 0.50, 0.25, 0.25 and 0.25 per cent of their total risk-weighted exposures, respectively, from 1 January 2025. The BoI exercised supervisory judgement to maintain UniCredit's reserve at 1.50 per cent also for 2025.